Countrywide Empties Out on Widowmaker gives a vivid idea of the turmoil in the mortgage market, and the difficult American real estate environment. "You sold your unlimited subway card after the 5th race, plunged full-bore on a filthy hot dog, a beer and a 9-1 shot that finished next-to-last. You are Countrywide."posted by Adamchik (42 comments total)

It's funny writing, but it's not particularly accurate.posted by Nelson at 11:53 AM on August 16, 2007

I thought all the numbers quoted about the options exercised by the Countrywide CEO were pretty dismaying. That's all our mortgage interest, going to pay for that one dude's major cash-in.posted by newdaddy at 12:10 PM on August 16, 2007

Angelo Mozilo, chief executive officer of Countrywide, recently exercised options for 46,000 shares in the company and then sold those shares for $1,306,400, according to Thomson Financial.

Mozilo owns 1,378,390 shares of company stock (497,297 held directly and 881,097 indirectly). Over the last two years, in addition to the current filing, Mozilo has been awarded stock four times totaling 787,694 shares, and has exercised options 270 times totaling 14,553,538 shares and has sold shares 268 times (14,550,928 shares for $536,348,378).

Man, I'm in the wrong business. Also, if I was that guy, I think I'd take my cool half-bil and run far, far away.posted by Kadin2048 at 12:14 PM on August 16, 2007

At what point does the marginally increased amount of money in your bank account start to become meaningless? Does it ever? Seems like this stuff all starts to become like a video game for CEOs, where they're just trying to set a new high score.posted by mullingitover at 12:17 PM on August 16, 2007 [4 favorites]

# As these attitudes toward credit become more "common sensical" - after all, Scurlock notes he is no genius, "it really wasn't that difficult to understand," - we will begin to see risk appetites diminish, risk aversion grow, and time preferences shrink.
# In other words, deflation.

So is it deflation or inflation? I should have taken economics instead of that advanced math in college.posted by forforf at 12:19 PM on August 16, 2007

Looks like a promising site. I appreciate it when an otherwise dry (to me) topic is presented in a more entertaining style. (I know, I know...Disneyfication, blah, blah, blah...)

Nelson: Is there something specifically you found "not particularly accurate" or is it the whole site?posted by jaronson at 12:23 PM on August 16, 2007

this interview from the washpo is interesting:
What has happened in the mortgage business and in the credit business in this country is very similar to what happened at Enron. . . . People forget that what brought Enron down at the end of the day, the first domino that caused everything to collapse, was a downgrade from a credit agency, and that set in motion a series of events that no one really could have anticipated in their scope, or the precise sequence of events. I think that's exactly what we're looking at now. When the credit agencies have to downgrade a lot of this debt, and they will, and you have hundreds of billions of these adjustable-rate mortgages resetting at higher rates before the end of the year, suddenly all these investment funds have to sell them. And that's a very scary scenario. When everyone's selling and you don't have any buyers, that's when you have a crash.

the idea of "financial infotainment" is just perfect, the right combination of crass and ironic. I think ENRON is the right example to be thinking about...posted by geos at 12:31 PM on August 16, 2007

Nelson: Is there something specifically you found "not particularly accurate" or is it the whole site?

I was wondering the same thing .....posted by blucevalo at 12:38 PM on August 16, 2007

I thought the writing was simplistic and boring.posted by delmoi at 12:39 PM on August 16, 2007

So should I buy or keep renting the van I'm living in under the bridge down by the river?posted by blue_beetle at 12:46 PM on August 16, 2007

At what point does the marginally increased amount of money in your bank account start to become meaningless?

For most of these guys I think it's just pure competition, the absolute amounts don't matter, so much as whether they are more or less than those of your billionaire buddy sitting across from you at the bridge table.posted by StickyCarpet at 12:57 PM on August 16, 2007 [1 favorite]

Oh goody. Countrywide has been our mortgage lender for years. We're signing papers to refinance our house (not sub-prime by any means) tonight with Countrywide, in fact.posted by anastasiav at 1:02 PM on August 16, 2007

>Seems like this stuff all starts to become like a video game for CEOs, where they're just trying to set a new high score.

Unlike a CEO's payout, your Defender high score will not get you mansions, airplanes, and trophy wives.posted by ardgedee at 1:18 PM on August 16, 2007

So should I buy or keep renting the van I'm living in under the bridge down by the river?
Definitely buy. Everyone knows renting is just throwing your money away...posted by Thorzdad at 1:19 PM on August 16, 2007

So is it deflation or inflation? I should have taken economics instead of that advanced math in college.
posted by forforf at 2:19 PM on August 16

These problems mostly came about from lenders making questionable loans. This means more buyers as loans are easier to get. More buyers mean more competition for homes for sale. As demand increases, generally prices will increase.

So more loans = more home buyers = higher home prices = inflation. Welcome to the last 5 years.

As these lenders have higher foreclosures and less access to easy liquidity in the market, they will become less likely to lend, so loans for homes will become harder to get for some people.

As the amount of easy credit diminishes, the demand for homes will diminish as well. As demand shrinks, generally prices will fall.

If you are a current home owner, it is likely that your home will not increase in value, or certainly not increase at the dizzying rates of the last few years. In some markets, the value of your home could decrease.

If you are not a current home owner, home prices near you will not increase at the rates they have the last few years, and in some places will actually fall. As foreclosures and defaults increase, there will be some bargains to be had on the market. However, realize securing a loan may be more difficult.

Ironically you may have more trouble getting a loan for a smaller amount now, than you would have for a larger amount 2 years ago.posted by Ynoxas at 1:24 PM on August 16, 2007

I thought it was trying to present a dry-ish subject entertainingly and failing. Also, rather than clarify things, the gonzo-biz style just confused them.posted by rhymer at 1:43 PM on August 16, 2007

Hypothetically speaking, if I were to have most of my savings in an FDIC-insured savings account at Countrywide, would it be prudent to get it out now, or is relying on the FDIC insurance a good idea?posted by grouse at 1:47 PM on August 16, 2007

Hypothetically speaking, grouse, I would get them out. But then I am an admitted Chicken Little about certain things. Having a guarantee from the FDIC only means that you can get your money back eventually, not right away. But between putting your money in a Citibank account and a Countrywide account, why not pick Citibank just for peace of mind?

If you go to a site like Bankrate.com right now, which lists what kind of return you can get on CD's at different financial institutions, the list of the top 20 "best" places is invariably filled with names like Countrywide, IndyMac, Washington Mutual, Wells Fargo, GMAC, E-Loan, etc. -- all of those places currently have extremely bad exposure to the mortgage/MBS/CDO mess which is just starting to snowball. That's why they raised their CD rates higher than anyone else's; they need you, the consumer, to invest your money in them. They need that liquidity while they try to clean up the mortgage/MBS/CDO mess in the other parts of their businesses.

Unfortunately, that's like putting a bandaid on a gunshot wound...

(In fact, doing a spot check just now, Countrywide CD's have the number one rate of return listed on a lot of Bankrate's different lists right now. They're approaching 5.8%! That's not reassuring. They must need money badly to offer that kind of rate.)

Countrywide is my mortgage servicer, too. They handle 1 out of every 10 mortgages in the United States; they're very, very big. If they go under -- and it's starting to look like that's actually possible if the downgrade report from Merrill Lynch is to be believed, and sooner than any of us had imagined -- it is going to be a giant headache not only for people like me who have (had) mortgages with them that need to be serviced correctly on time every month, but also for the shockwaves that will ripple throughout the US economy. We're talking Enron-sized at a minimum.

The inflationary stimulae have already been applied, 2002-2006, when consumer debt went from $6T to $12T.

What will prove to be deflationary is when credit is tightened. . . the carousel slows, people lose their jobs, consumptions slows. Rinse & repeat.

Prior to this year I simply did not understand the relative differences between governmental deficit spending (those $500B+ deficits from 2002-2006) and what Greenspan, the Fed, and the Treasury was allowing wrt money creation via the mortgage lenders.

From 2004-2006 $800B to $1T of new money EVERY YEAR was flooding into the economy via mortgages, HELOCS, and consumer credit applications.

You can throw one helluva party on one trillion dollars, but now the bills are arriving.posted by Heywood Mogroot at 2:48 PM on August 16, 2007

Prices are going to go down EVERYWHERE there was significant price rises due to these suicide loan products (as opposed to genuine wage growth).

The market will eventually conform to affordability limits enforced by the financial industry.

An interesting counter-weight to this gravitational force is the possibility that buyers' pain tolerances (how much they are willing to pay for housing) have been permanently adjusted by this run-up. If 50% of gross income is the new pain threshhold, then prices may not decline in bubble areas so drastically.posted by Heywood Mogroot at 2:57 PM on August 16, 2007

What I don't understand is that, apparently, the European Central Bank is throwing bargeloads of money at the markets to maintain liquidity right now, whereas other players that ought to be more worried, like the Fed or the Bank of England, seem to take things far more relaxedly, doing rather little (or, in the case of the BoE, nothing at all). Are German banks really so exposed to the US subprime meltdown?posted by Skeptic at 3:03 PM on August 16, 2007

Just to avoid some of the distress that might be caused by the comments here, having your loan through Countrywide is not a concern. The actual loan has almost certainly been packaged up with other loans and sold to an investor downstream. Countrywide may or may not have retained the servicing rights, i.e. the responsibility for collecting and distributing the payments. Just because you are mailing the check to Countrywide doesn't mean they get to keep the money. If they go out of business, the servicing rights are a valuable asset (banks get paid for it) and they will be picked up by another bank.

Your mortgage loan is a contract, and as long as you make your payments on time the lender can't just call your loan if they get into financial difficulties. In practice, even if Countrywide still owned your loan they would simply sell it in the secondary market. They might have to sell it at a discount (and receive less than they paid for it), but they would get the bulk of their cash back and none of that would have any effect on you as the borrower, your payments or anything other than maybe where you mail the check each month.

If you have good credit and an adjustable loan, this might be a good time to refi into a fixed rate. The mortgage/credit situation will get worse before it gets better, and maybe a lot worse.posted by JParker at 3:07 PM on August 16, 2007

At what point does the marginally increased amount of money in your bank account start to become meaningless? Does it ever? Seems like this stuff all starts to become like a video game for CEOs, where they're just trying to set a new high score.

Exactly. When I read these types of articles, I feel the same as I do when I hear about how people are going to lose 50 DKP if they get aggro and should throw more dots in WoW, except somehow this is running our world and right now everyone just "wiped their raid group" or whatever it's called and this somehow fucks millions of people.posted by TheOnlyCoolTim at 3:10 PM on August 16, 2007 [2 favorites]

none of that would have any effect on you as the borrower, your payments or anything other than maybe where you mail the check each month.

Not exactly true. For example, mortgage companies are known to mess things up from time to time, even if you're set to auto-pay through their website or auto-pay through your own billpay website, like your bank account. Maybe they miscalculate the estimated withholding for property taxes one year, maybe they forget to pay your insurance one month. It happens. And of course, this is more likely to happen if you are sending in payments through postal mail every month.

In those cases, you need someone to call to straighten it out. If Countrywide goes down, who is that person? What if they sold your actual mortgage, as part of a security made of up of multiple people's mortgages, to an investment bank? What if the bank split that up into tranches? What if the tranches all collapse in value (as is happening now) and the bagholders bicker over the remains? I don't want Lehman Brothers to suddenly get into the mortgage servicing arena, and I don't think they're much interested either.

Another issue: what if you lose your job or get sick, and you miss three months of payments? If you have a "nice" servicer, you can call and explain your situation and get "forbearance", where those three missed payments get tacked onto the end of the loan, because it is in their best interest that your one-time short-term blip in payments doesn't snowball into foreclosure, which could mean their losing big money and having to become de facto realtors, instead of just servicers. If someone else, a bank or an unknown servicer, owns your mortgage, good luck getting forbearance in a short-term crisis, because they need their money and don't necessarily need to be nice to you. You are more literally an asset, not a person.

So no, your rates won't change or anything weird like that -- a contract is a contract. But it could probably be a big headache anyway.

If you have good credit and an adjustable loan, this might be a good time to refi into a fixed rate. The mortgage/credit situation will get worse before it gets better, and maybe a lot worse.

"Prices are going to go down EVERYWHERE there was significant price rises due to these suicide loan products (as opposed to genuine wage growth)."

The tricky part of that statement is, "where has there been genuine wage growth in America the last 5 years?"

I don't think anyone is going to like the answer to that.

"If you have good credit and an adjustable loan, this might be a good time to refi into a fixed rate."

You'd better have very good credit. The word out there is that if you owe anything over $417,000, you'd better have an 800+ FICO if you even want to hope to refi. Under that, depends on your balance. I wouldn't expect anyone with FICO under 700 to be able to refinance at ALL unless they've got major equity in the house already...

If you're underwater on your mortgage (house currently worth less than you owe) you are pretty much boned.

The time to refi to a fixed rate was no later than June 2006, IMO.posted by zoogleplex at 3:39 PM on August 16, 2007

But the servicer/underwriter issue isn't as dire as you portray. As long as the borrower can continue directing money into the instrument per agreement, or as long as any modification is covered in the instrument's protocols, there's no real issue as to who owns vs. services the loan.

But the big issue is what happens when the borrower needs remedies that are not covered in pre-existing protocols. Another joke on the blogs is renting out the local sports arena to bring the CDO owners together to agree on term modifications.posted by Heywood Mogroot at 5:07 PM on August 16, 2007

So, when does the real crash begin? Seems like all the real players are on vacation.

I just look at everything going on and think that the Dow is going to close the year sub-10,000 and we'll be in the teeth of a global recession come Election Day 2008. I have a hard time seeing how the Fed bail us out of this one without cutting interest rates (boosting inflation) or printing money (boosting inflation).

And if the Fed fails... hello President Paul.posted by dw at 5:16 PM on August 16, 2007

"where has there been genuine wage growth in America the last 5 years?"

(In fact, doing a spot check just now, Countrywide CD's have the number one rate of return listed on a lot of Bankrate's different lists right now. They're approaching 5.8%! That's not reassuring. They must need money badly to offer that kind of rate.)
posted by Asparagirl

WSJ Deal Journal says Countrywide is offering 25% to 35% yields on its bonds right now. Worthless and desperate, like cash on the Titanic.posted by surplus at 5:38 PM on August 16, 2007

I don't think Countrywide is offering 25% yields (which would be insane), I think their publicly traded bonds are trading at a discount price that would give the buyer a 25% yield on his/her money. That means that investors are dumping these bonds, which is understandable. On the other hand, some the world's richest people made their money scooping up distressed bonds like these (Carlos Slim was the biggest holder of WorldCom bonds in the end, for example).

For the person with money at Countrywide Bank, I was going to say that you shouldn't worry because I am sure the bank is a separate corporate entity with its own assets and reserve requirements. All that is true, but this article suggests that people are pulling their deposits anyway, which, maybe does suggest that you should too -- a run on the bank is a run on the bank, logic be damned.posted by Mid at 6:32 PM on August 16, 2007

dwwrites"I have a hard time seeing how the Fed bail us out of this one without cutting interest rates (boosting inflation) or printing money (boosting inflation). "

I'm pretty sure that's the plan anyway: we'll inflate our way out of this mess. I can't wait to line my shoes with Benjamins while I'm in line at the soup kitchen.posted by mullingitover at 6:44 PM on August 16, 2007

Oh man, they need those reserves to keep lending. Each 20k CD pulled out is one less $200k mortgage they can book.

Funny thing, I went into a Countrywide in late 2001 to ask them what kind of loans they had for a dude pulling in dotcom money but not enough for a 20% down yet. . . They didn't have anything then, IIRC.

I liked their logo. A company with a logo that friendly couldn't be evil, right?posted by Heywood Mogroot at 9:03 PM on August 16, 2007

I'm pretty sure that's the plan anyway: we'll inflate our way out of this mess.

Not exactly true.
Yes, it is. This is exactly the kind of misunderstanding I was talking about.

In those cases, you need someone to call to straighten it out. If Countrywide goes down, who is that person?
Whoever is servicing your loan. If you read the documentation on your loan contract, you are the one who is responsible for paying your property taxes. The servicing agent (not the lending institution) agrees to collect and disburse those monies as a service to you. They have no liability for any mistakes. You should know what your property taxes are (you get a bill from the tax man every year) and do the math.

What if they sold your actual mortgage, as part of a security made of up of multiple people's mortgages, to an investment bank?
That would not matter. You remit payment to the servicing agent, not the mortgage holder.

What if the bank split that up into tranches?
That would not matter. Your payment goes to the servicing agent. In the event your loan is part of a CMO or other tranched investment, the servicing agent pays a trust (a different bank, who does the math to determine what each tranche holder receives in principal and interest each month), and the trust pays the bondholders. Nothing changes on your end as the borrower. Same payment, same address.

What if the tranches all collapse in value (as is happening now) and the bagholders bicker over the remains?
That would not matter. All that means is that investor who bought your loan (either directly in the secondary market - unlikely these days - or in some kind of securitized vehicle like a FNMA or FHLMC certificate or a CMO tranche) can't sell it without taking a loss. Those securities go up and down in value every single day, and borrowers are not impacted at all. Note that the bondholder still gets the interest that is the coupon rate on the instrument they bought, and they still get their principal back over time as you pay off your loan. It's only their ability to cash out early by selling it that is impacted by a decline in value. In practice, "bickering over the remains" never happens, since (1) there would only be "remains" in the event that a significant percentage of the borrowers defaulted, and (2) every contingency, including defaults, is covered in the trust agreement that the bondholder agreed to when they bought the bond (when you buy one of these, you get a prospectus - a legal document usually over 100 pages long).

Not that the mortgage markets are perfect - they aren't. And the situation is a legitimate cause for concern - drops in value mean increases in the yield on these instruments, which of course compete directly for investment dollars with new loans. So when secondary market prices drop, new loan rates go up.

But please don't waste time worrying about things like your home loan exposure as a borrower, even if you funded through Countrywide. You could even argue that now is a good time to talk to Countrywide about refinancing, since (depending on their capital ratios) they could be desperate for business and making deals, similar to the situation with their deposit rates.

I wouldn't put more than $100,000 on deposit with Countrywide (and note that includes any interest you expect to get paid, so for a 1 year CD at 5.50% that means about $94,000). On the other hand, an account for "Joe MeFi" is eligible for $100k in FDIC coverage, and an account for "Joe and Jane MeFi" is eligible for $100k in coverage, and an account for "Joe MeFi as TTEE FBO Little Bobby MeFi" is eligible for $100k, and so on. You can work it. The risk in that case is that if the bank collapses and the FDIC is slow to step in (not likely) then you could have to wait up to six months to get your money back. Again, it's in your contract.posted by JParker at 6:17 AM on August 18, 2007

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